Naked Puts: Make a Grand This Month With Options

These trades should generate $1,000 in monthly income ... but understand the risks of naked puts before you try

I set a goal this year to generate $1,000 in income from options premiums each month. Although there are many options strategies you can utilize to do so, I’ve always preferred to use naked puts and covered calls. They are the simplest approaches, and I just happen to have had great success with them over my 19 years as a stock investor and trader.

There are some great naked put plays, but before I jump in, I want to remind readers of how they work and the risks involved.

When you sell a naked put, you are selling the right for someone else to put shares of a stock to you at a specific price, on or before the expiration date. You don’t actually hold the stock itself (or rather, you might already, but it doesn’t affect the trade). Therefore, you need to have enough money, or margin line, to pay for any stock that is put to you. Otherwise, if things are looking like the stock will get put to you, you’ll have to buy back the put you sold at a higher price and eat the loss.

The whole point of selling naked puts, however, is that you don’t mind holding the stock because it’s a good company.